Thursday, December 15, 2011

Who are your best customers (and why many don't know)?

Some time ago, I was at the box office when a major donor who lives out of town came up to the window. I instantly recognized her even though she hadn't visited us in quite some time. After warmly welcoming her back, I stepped away briefly to attend to another matter, and when I returned to continue our conversation, I was startled to see that she was being charged an exchange fee to transfer into another performance. When I inquired, the box office associate rightly told me that she wasn't a subscriber, and that waiving exchange fees was a subscriber benefit. In this case, the patron wasn't a subscriber because she lived thousands of miles away, however she was an incredibly generous donor, giving both to our annual fund and our campaign. Her giving over the years easily made her one of our most valuable customers, but because she wasn't a subscriber, the box office didn't grant her one of our entry level benefits.

This wasn't a human error, but a systemic one. At the time, we were operating a ticketing software that didn't reflect giving history, so there was no way the box office associate could have known the patron's lifetime value. And even if the ticketing system notified the box office associate of the patron's giving history, the associate would have had to override the benefits structure we had in place as complimentary ticket exchanges were a subscriber benefit, not a donor benefit.

We had a problem. Fundamentally, how we defined our best customers changed depending upon which department was asked, and the company as a whole had yet to identify our best customers in a holistic manner.

Two years ago, we took the first steps to address this issue. First, we replaced our antiquated ticketing software with an integrated database that housed all transactional data across our various departments allowing users to see an overall picture of each patron. Once in place, we had to develop a system for defining our best customers from the perspective of the entire company. We hired Target Resource Group to develop an algorithm that incorporated all transactional possibilities with our company, and then apply that algorithm to our database to develop a Patron Loyalty Index score for patrons in our system based upon transactions over the previous five fiscal years. The index scores allowed us to separate our database into four major categories, and today, certain overriding benefits are assigned to the higher level categories.

If the aforementioned major donor were to come to our box office today and request an exchange for a single ticket purchase, an associate would enter her information into our database, and the database screen would immediately turn red--our signal that we are interacting with someone with a very high Patron Loyalty Index rating. The associate would then know that an exception to the exchange rule would be in order as a result of the major donor's lifetime value to the organization.

The way the communications and development departments do business at Arena Stage has fundamentally changed over the course of the past two years. We view ourselves as full partners in building patron lifetime value. We work together to increase loyalty, reduce attrition and grow revenue. Subscriber renewal rates are at an all-time high, patron churn has decreased by 7%, the number of full season subscribers has increased 18%, and our membership program is pacing well ahead of last year.

Knowing who our best customers are has made all the difference.


Tony Adams said...

What would happen if instead you didn't charge people a change fee?

Chad M. Bauman said...


In my experience, exchange fees are assessed for two reasons:

1) Exchanges usually occur at the last minute. Sometimes they cannot be avoided, and other times they are requested for convenience. Either way, when a theater has a sold out performance, and a ticket is returned at the last minute, often times that ticket remains unsold or has to be sold at a significant discount (i.e. a rush ticket). In exchange, the patron gets a ticket for a future performance that most likely would have been sold at full price anyway. So an exchange can actually cost theaters more than 50% the face value of the ticket. Even a very modest exchange fee will encourage customers to commit to a date. If a theater were to completely eliminate exchange fees, patrons would purchase tickets for dates they weren't fully committed to, and would exchange frequently. Given that each exchange could cost a theater a significant amount of revenue, it would be a losing proposition.
2) The value proposition of a subscription is based upon subscribers getting the best seats in the house at the best prices with the maximum amount of flexibility. Theaters reward subscribers for their loyalty with certain benefits, and one of those benefits is complete flexibility by providing no cost exchanges. If a theater were to remove fees for everyone, they will lose a significant subscriber benefit. In my opinion, loyalty programs should be in place to reward patrons for subscribing.

Greg said...

Chad- I'm fascinated by the system you have developed using algorithms to determine the customer/patron value, and the integration of donor history and ticket sales history. I'm wondering what your thoughts are on ways for smaller companies to scale these ideas down for scenarios when a Cadillac level software system and expensive consultants are out of reach; or, as in the case of many New York area theaters, the ticket sales function is outsourced to a company like Telecharge, ovationtix, etc?